Treasurer Updates Economic Modelling on Carbon Pricing

Today Treasurer the Hon. Wayne Swan MP released a snapshot of the carbon price modelling currently being undertaken by Treasury. The full economic modelling will be publicly released shortly, and will detail a number of scenarios. This information will be used by the Multi Party Climate Change Commission in their deliberations around the setting of the price for the fixed price period before moving to a full emissions trading scheme with a market based price.

The Treasurer’s snapshot today is based on a fixed price for carbon emissions of $20 per tonne, which he indicated should not be interpreted as the final carbon price, since no agreement has yet been reached. This scenario would result in the following effects for Australia’s economy:

• Real national income growth would continue at an annual rate per person of about 1.1% until 2050, instead of 1.2% without a price on carbon. By 2020, real national income per person would be 16% higher than it is today, and by 2050 would be 56% higher than it is today.
• Aggregate employment levels would be approximately the same with or without a price on carbon, resulting in an increase by 2020 of around 1.6 million jobs.
• Demand for low-emission technology and services, like renewable electricity, will increase dramatically. Gas-fired electricity is projected to increase 150-300% by 2050, with the renewable electricity sector projected to grow by 600%.

The protection of Australian tourism icons like the Great Barrier Reef, and the continuing agricultural wealth of the Murray-Darling Basin will create other benefits in addition to those outlined above.

The Treasurer also foreshadowed the imminent release of the Productivity Commission’s report about international action. The Productivity Commission’s study takes in the detail of measures being used around the world in countries like China, India, South Korea, Japan and the United Kingdom. The Treasurer noted that the study will make clear that market mechanisms are a far more cost-effective method of reducing carbon emissions than central regulation or subsidies. He said that “it should not be beyond us to turn the necessity of cutting pollution into big opportunities for Australia, like our major trading partners are doing.”

A copy of the Treasurer’s speech is available here.